CBI highlights PFI costs

1st May 2006

Sloppy procurement by the National Health Service on hospital projects is wasting millions of pounds that could be spent on frontline services, the CBI business lobby group has warned, reports Andrew Taylor in the Financial Times.

The CBI said that procurement delays were adding £2.4m on average to the cost of hospital projects being built under the private finance initiative. The total cost, including continuing projects, could exceed £122m as a result.

The CBI estimated the average cost of procurement delays was equivalent to 1 per cent of the capital value of each PFI scheme. The NHS recommends that the procurement process for PFI hospital scheme should take 18 months; on average it took 21 months longer than this, the CBI reported. It added that for schemes with a higher capital value, the costs of delay are likely to be even larger than this, as shown by the estimated £600,000 a day lost due to delays to the Bart's and Royal London regeneration scheme.

CBI deputy director-general, John Cridland, said that the private sector has delivered more facilities and services on time and to budget than the old system of public design and construction ever did. Yet, he added, unnecessary problems remain. "The financial realities of schemes are often not considered until late in the day, so further time-wasting reviews are needed. On other occasions, the NHS doesn't know what it actually wants and so new and revised bids have to be submitted." he said.

Estimates of the financial impact of delays were conservative, Mr Cridland added. They included costs for employing project managers, architects, and other staff while causes of delays were resolved but took no account of additional costs incurred by the Department of Health and unsuccessful bidders or the impact of overruns in numerous other small-scale PFI projects for the NHS.

NHS trusts should pay for the cost of delays up-front, proposes the CBI. It also wants improved training for procurement staff, better systems for mediation, and a simplified bidding process.

Most costs were incurred up-front by contractors, said the CBI. The NHS only began paying money back when facilities had been constructed. On a large project the contractor could have to wait 30 years for its money, the CBI continued. Some companies would not be able to absorb these costs, raising a big barrier to entry in the market, reducing competition and the potential for the NHS to achieve value for money, stated the Financial Times.

"Such waste at a critical time for the NHS must be avoided. Ministers and officials must work with business to make sure that these problems are overcome." concluded Mr Cridland.